General Electric GE shares jumped higher in pre-market trading Friday after analysts at Goldman Sachs resumed coverage of the industrial group with a buy rating and a $10 price target.
Goldman Sachs analyst Joe Ritchie, citing the progress towards a ‘”leaner, structurally more productive company with better capital discipline” during the two-year tenure of CEO Larry Culp, said the group’s free cash flows will improve next year as its higher-margin businesses recover from the worst of the coronavirus pandemic. He also argues there is potential upside for both the stock and its longer-term price target heading into the group’s third quarter earnings on October 28.
Culp told investors last month that GE’s industrial free cash flows would be positive before the end of this year, a noted improvement from his July update that it would likely turn positive on in 2021.
General Electric shares were marked 3.3% higher in early trading Friday to change hands at $6.86 each, a move that extends the stock’s one-month gain to around 10%.
In late July, when GE published a wider-than-expected second quarter loss of $2.2 billion, Culp noted “faster progress on elements within our control, including our targeted cost and cash preservation actions.’
GE’s second quarter revenues fell 38.5% from last year to $17.7 billion, a figure that topped analysts’ forecast by around $700 million for the three months ending in June. Industrial free cash flow was also better-than-forecast, at -$2.1 billion from $-2.2 billion in the first quarter, and the conglomerate said at the time it expected to be free-cash flow positive by next year.
Revenues from GE Power, one of the group’s biggest divisions, remained reasonably solid, down 11.1% to $4.16 billion, while Aviation revenues fell 44% to $4.4 billion as global aircraft demand collapsed during coronavirus travel restrictions and Boeing’s BA 737 MAX remained grounded under FAA orders.
Aviation orders were down 56% at $3.7 billion, GE said, while the unit registered a second quarter loss of $680 million.